Goldman Sachs has waded into the raging political war over US fiscal policy, with a note explaining the economic ramifications of the battles on government spending, a possible shutdown of federal operations, and even the furore over collective bargaining rights in Wisconsin and some other midwestern states.
On the budget itself, Goldman economist Alec Phillips says the Republican plan approved by the House of Representatives last Saturday – with $61bn in spending cuts between now and September, would lead to a drag on US GDP growth of 1.5 to 2 percentage points in Q2 and Q3, before it tails off.
Mr Phillips also points out that the more likely scenario – a compromise with $25bn in spending cuts – would lead to a 1 percentage point hit to GDP growth in Q2, fading thereafter, with “negligible” impact on growth by the end of the year. Read more
In its early days, the European Central Bank would talk of the eurozone only as a single bloc. But after the crises of the past year, the euro’s monetary guardian now sees a clear need to monitor individual countries closely.
Speaking this evening in Liège, Jean-Claude Trichet, president, has positioned the ECB firmly behind plans being drawn up in Brussels to step-up economic surveillance based on national indicators. He cited seven variables that ECB staff had identified as providing “early warning signals when macroeconomic imbalances emerge and when countries are experiencing significant losses in competitiveness, or when there are risks thereof”. Read more
Hot on the heels of a strong devaluation and a raise in the refinancing rate to 11 per cent, Vietnam has increased its reverse repo rate 1 percentage point to 12 per cent. No word yet on the base and discount rates, both last raised in November; they stand at 9 and 7 per cent, respectively.
Raising borrowing rates in Vietnam is an attempt to curb inflation, which will have been encouraged by the devaluation. Prices rose by 12.3 per cent in the year to February, following a 12.2 per cent rise to January, against a target of 7 per cent. Weakening the dong will make imports more expensive, which in the case of goods such as energy will work to push up dong-denominated prices generally. Read more
Spencer Dale joined the hawk camp this month, latest minutes show. Now three of the nine Bank of England members are in favour of a rate rise, compared to two last month and one the month before.
Andrew Sentance, the original hawk, upped his rate rise request from 25bp to 50bp, or half a percentage point. Martin Weale and Spencer Dale preferred a quarter-point rise. Read more